Has Indian Real Estate Reached A Dormant Stage?

BENGALURU: Have you been listening to your local radio recently? If you did listen, you would have definitely heard the advertisement of some property developers offering ‘free’ items to lure the buyers. The one that I heard says ‘Buy one plot and get another plot absolutely free’. Did you think they are being generous to offer such a huge gift? No. The fact is that the Indian Real Estate market is in a hangover state after the 2006-2007 construction boom that logically gave way to a slowdown.

International News Agency Reuters observed a significant slowdown in the real-estate market in the Thomson Reuters Starmine Data. The data shows that the developers now need to wait for as much as four and half years to see their property inventory (at current value of the market) turn into cash. The period that is one year more than the developers in China.

This comes as  devastating news for not just the developers in megacities, but also to the lenders who are already burdened with heavy debts. Whereas the Central Bank has been making efforts to accelerate growth which implies that the borrowers are forced to further cut the interest rate, though there is no immediate profit.

According to Preeti Patil, who works for a large Indian Media Group, the situation today is that, it is a ‘buyer’s market’. The scene in Mumbai is that the owners of big property dealers are forced to come in terms with the buyers and sell it according to their wish, builders are even ready to give away a square feet at just 500 as against 1,200 in 2014. Meanwhile the developers are luring the buyers with gold coins, motorbikes and even Apple iPhones. Leave alone whether or not such gimmicks will work, as of now the demand for empty or under-construction, high-end residences remains flat.

Analysts at brokerage, Kotak Securities anticipate that this current backlog in the industry will continue for the coming decade. The demand for residential properties in Mumbai has been squeezed with prices doubling as compared to 2012. Low demand, cash crunch and lack of approvals have resulted in stalling the projects by some developers in Mumbai.

The developers might soon face an alarming situation, if we closely observe the statement given by Pankaj Kapoor, Chief Executive of real estate rating and research firm Liases Foras, who says, “On one side, there’s a housing shortage and on another you have rising inventory and that’s a very big paradox.”

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